Dollar Falters as Commodities Surge

January 11, 2010

The dollar overnight lost 1.0% against sterling, 0.8% versus the euro and Australian dollar, 0.7% against the Swiss franc and kiwi, and 0.4% relative to the Canadian and Japanese currencies. Japanese markets were closed for Coming of Age Day.

Equities improved 1.1% in Thailand, 0.8% in Australia, 0.7% in Indonesia, and 0.5% in Taiwan, China, and Hong Kong. In Europe, the Paris Cac and British Ftse are trading 0.9% higher, and the German Dax is up 0.7%.

Two factors lie behind these movements:

Euphoria about China’s economic recovery.

Remarks by St. Louis Fed President Bullard that recovery remains the Fed’s top priority and that quantitative easing should perhaps not end in March.

China reported on-year increases of 55.9% in imports and 17.7% in December. Analysts had expected exports to climb just 5%. Chinese car sales surged 46% last year, ending America’s century-old leadership in that category. China also replaced Germany as the worlds biggest exporter. Two well-placed Chinese analysts warned that GDP growth could reach 16% this year. But Beijing officials in the Finance Ministry said pro-growth policies would continue.

Treasury yields are lower in the wake of Friday’s U.S. jobs data and Bullard’s dovish remarks. The two-year yields dropped 7 basis points to 0.94%. British gilt yields are higher, in contrast.

A December survey by the British CBI of financial services found pessimism to be the deepest in over a year.

Australian job ads advanced 6.0% last month on top of a 5.2% increase in November.

Malaysian industrial production fell 1.3% in November, more than offsetting October’s 0.9% gain.

Venezuela implemented a deep devaluation of the Bolivar to 4.30 per dollar from 2.15/$ and instituted a dual exchange rate system. A second bolivar rate for essential goods was set at 2.60 per dollar. The steps were taken to combat black market activity where the dollar is fetching 6.25 bolivars.

French industrial production unexpectedly rebounded 1.1% in November, three times the forecast, after falling by 0.6% in October. Output was still 3.8% lower than a year earlier.

Swiss real retail sales were 0.6% lower in November than a year earlier after posting an on-year increase of 3.6% in October. Hildebrand of the Swiss National Bank said a commitment remains to prevent excessive franc appreciation against the euro but that the central bank is not defending any specific level.

Greek consumer prices firmed 0.2% in December and to a 12-month rate of increase of 2.6% from 2.0% in the year to November.

Danish consumer prices eased 0.2% in December but rose 1.2% from a year earlier, accelerating from 0.9% in the year to November.

Norwegian consumer prices firmed 0.2% last month and rose 2.0% from December 2008. The 12-month core rate was 2.4%. The PPI fell 0.4% in December but was 10.0% greater than a year earlier.

Czech consumer price inflation doubled to 1.0% on year in December from 0.5% in November.

Nowotny of the ECB warned that signs of excessive market risk-taking has reemerged in the United States.

Nakagawa of the Bank of Japan said very low interest rates may be retained into 2011.

New Zealand house prices rose 2.8% in December from a year before, almost three times faster than the on-year 1.0% increase in November.

Hungary’s trade surplus of EUR 411 million in November was a little smaller than forecast.

Today has a big slate of scheduled Canadian data: housing starts, building permits, the quarterly corporate survey, and the quarterly survey of senior loan officers. There is a central bank rate announcement due in Colombia, but no change is expected. No U.S. figures are due.

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